Paragon Commentary

Futures FIle: Oil Rebounds & Storms on the Rise?

Apr 03, 2020

Oil Rebounds

On Monday, oil prices plunged below $20 per barrel for the first time since 2002, trading as low at $19.27 as concerns about a slower global economy and the ongoing Saudi-Russian production war continued.

For nearly a month, Saudi Arabia and Russia have been racing to outproduce one another in an effort to hurt the other, as well as driving U.S. shale oil producers out of business. This increase in drilling is coming at a time when demand is drying up due to reduced travel, creating a global glut of oil.

As a result, oil prices have fallen by two-thirds so far this year, which may be finally prompting both sides to give in. The Organization of the Petroleum Exporting Countries (OPEC), a cartel of oil producers dominated by Saudi Arabia, will be holding a remote meeting on Monday with Russia to discuss production cuts.

Furthermore, U.S. politicians, including oil-state senators and President Trump, have been pressuring Saudi Arabia and Russia to end the feud. A rebound in prices would be beneficial to the flagging U.S. economy, as petroleum-related industries are a major source of domestic employment.

Markets are expecting that a major production cut could come out of this meeting, which caused prices to surge by over 40% in two days, trading briefly near $28.50 per barrel on Friday.

Stormy Season Ahead?

As all eyes are on the ongoing coronavirus crisis, other annual threats continue to loom.

Out West, conditions in January and February have been exceptionally dry, which could lead to another dangerous wildfire season. Worse yet, quarantine orders and concerns for public health have led to a reduction in training and preventative burns, which could leave firefighting crews understaffed and forests full of tinder.

In the Southeast, temperatures in the Gulf of Mexico and Atlantic Ocean are well above normal levels, setting the stage for an active hurricane season. If current conditions hold, forecasters are expecting that there could be 15 named storms this season, versus an average of 12 similar storms during the last 30 years.

In the current environment, preparation for natural disasters could be especially difficult, which could make their impacts even larger than usual.